Conspicuous Correlation: Retail Sales - April 2013

Includes: PMR, RETL, RTH, XRT
by: Sold At The Top

Today, the U.S. Census Bureau released its latest nominal read of retail sales, showing an increase of 0.1% from March. It also showed a gain of 3.7% on a year-over-year basis on an aggregate of all items, including food, fuel, and healthcare services.

Nominal discretionary retail sales -- including home furnishings, home garden and building materials, consumer electronics and department store sales -- rose 0.84% from March. That's an increase of 1.8% above the level seen in April 2012, while, adjusting for inflation, real discretionary retail sales rose just 0.32% over the same period.

On a nominal basis, there had appeared to be a rough correlation between strong home value appreciation and strong retail spending preceding the housing bust, and an even stronger correlation when home values started to decline. The following chart shows the year-over-year change to nominal discretionary retail sales and the year-over-year change to nominal the S&P/Case-Shiller Composite home price index since 1993 and since 2000.

As you can see, there is, at the very least, a coincidental change to home values and consumer spending during the boom and then the bust. As home values have continued to decline, retail spending has remained low but has not continued to consistently contract.

Looking at the chart below, adjusted for inflation (CPI for retail sales, CPI less shelter for the S&P/Case-Shiller Composite), the rough correlation between the year-over-year change to the discretionary retail sales series and the year-over-year S&P/Case-Shiller Composite series seems now even more significant.